Earnings call transcript Q2 2023

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Operator

Good day, and thank you for standing by. Welcome to the onsemi Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.

to Agarwal, conference Relations Vice Development. like host to and now Parag today, President would hand over the your Corporate I of Investor go Please ahead.

Parag Agarwal

second thank Thank XXXX webcast joined I'm this our on is section Trent, Hassane and Relations for quarter’s morning, of our Liz. website webcast this and approximately webcast will President conference following by quarterly for website available of and earnings the the XX available our and at www.onsemi.com. you, be this with joining conference release call. A Investor Good replay today onsemi's approximately along one conference our recorded being second CEO; on quarter our days El-Khoury, call. CFO. be XXXX results call hour will following you Thad call, This

information of section Investor is our website. the posted Additional Relations on

comparable non-GAAP our GAAP our of which Our the to the earnings measures. financial posted earnings release Reconciliation directly measures section. Relations and Investor non-GAAP in this financial on included separately in measures certain is measures are includes GAAP and these website release, presentation most financial the

projections. actual future company. or statements such we During or performance forward-looking projections conference events differ or subject to regarding are from financial statements that We the the cause the results future uncertainties call, will of wish could other to events that course this of make caution materially and risks to

earnings other of the our the business, Form in from for and recent can filings quarter factors our affect differ described and our second XXXX. in Commission actual and Securities Form factors Important are to XX-Qs with XX-K, our Exchange could statements release that including that cause forward-looking results most

results, no by statements except assumptions and forward-looking required changed as occur to other obligation or law. actual reflect may assumes change or update events other may forward-looking estimates that statements to company the Our

Now, turn Hassane? Hassane. me let to it over

Hassane El-Khoury

The us. for the with revenue gross I our thrilled everyone guidance. QX of thanks another executive with on of are the following and Parag. above the onsemi joining you, to billion Good morning, for and both results midpoint non-GAAP staff XX.X%, $X.XX Thank call and quarter of margins successful

Our worldwide saying should teams I spinning well, start they're cylinders, now. on maybe all motors firing are all

approach and to onsemi formula quarter-after-quarter. reliable Our consistent disciplined, the of winning continues be execution for

We financial our have are again customers. success our current technology, recent all surpass everyone performance market while new we example very highly complex best-in-class to exceeded to is for a targets, metrics most all and carbide silicon contributes the daily. The while despite our We continuing manufacturing proud and delivering of ramped and internal its performance. environment, that

more growing production our our this have of Given over internal Xx with energy of in QX to 'XX, substrates track part XX% and revenue is growing from we achieve remain our of year infrastructure. silicon on remain progress end track by business, by work first our are excited the $X nearly on revenue billion QX. Customers carbide fastest QX to us. than to EV coming the followed

amid for new uncertainty opportunity in gain an onsemi supporting Our silicon creating capacity successful to carbide ongoing space. is this by demand expansion share in supply

through In new bringing Silicon QX agreements of LTSAs, our signed billion. billion long-term more $XX total revenue Carbide $X over alone, Silicon Carbide we lifetime to committed than supply

drive as $XXX for of quarter ramp. for They a need growing last million to support $X.X our technologies the are a signed who agreement electrification with ensure carbide wins in billion was modern largest XX-year of One LTSA to part Vitesco, this co-investing solutions, electric capacity and leader silicon in vehicles. their

of increase XXX volt into to and power our overall the XXXX engagement deliver and BorgWarner with efficiency, its power performance integrate EliteSiC which higher increased carbide We also extended our devices EVs. density range modules power and silicon to

We longstanding silicon committed this carbide with relationship revenue. and have LTSA a amounts $X now had of billion extended BorgWarner to

have technologies carbide our portfolio. suppliers, we with power world's of traction inverter automotive the largest cooling acceleration our deliver over a of XXXX e-drive signed performance electric and years. has the improve power silicon included into and across XX will solutions long integrate vehicles and of EVs. to LTSA efficiency Together, and By help Magna, intelligent strategic volt Magna will systems to one devices sensing Magna's Finally, we that intelligent industry-leading collaboration, expand EliteSiC which will the faster rate the integrating onsemi's increase charging improve greater next technology, range performance our

equipment our us business $XX with in LTSAs to locations with visibility, integral silicon pricing for while Republic million LTSAs become way our to Czech plan to and have volume to In commitments, new ensure the do access supply. customers. an us strategic in extended provide allowing part addition, co-invest continue Hudson we in and stability will long-term of carbide capacity. they future

with time QX and In of It account XX% terms dynamics, X% our automotive of now industrial and respectively, quarter-over-quarter remained of total and revenue. market XX% was healthy electric for single the sensing growth in driven both in and billion strength $X vehicles first quarter that by the intelligent in advanced safety for automotive surpassed mark intelligent a applications. revenue our power for

for field well ago of regulations with New These detect which and pedestrian higher electronic standards road now widely as as to with as high users top cyclists, device, only that braking regional speed by first models. makers resolution their car new a vehicles require production highways. years for two met adopted we image view be be will such XXXX both sensors, like the and megapixel equipped vulnerable is in introduced can eight wider

this megapixel double for than eight image our year-over-year. With our revenue more expect to XXXX adoption, sensors accelerated we

with to sensors while further of introduced range for sensing dynamic Hyperlux have automotive designed industrial all our highest the the expanded We and the markets, delivering Family available flicker, image market. newly in portfolio intelligence eliminate

savings. surveyance low energy such extend products new power our For with offer even vision, and industrial to Wake-on-Motion applications machine further also intelligent as very

of is ADAS customers across onsemi this global leading U.S. supply making fab imaging value with of a partners, supply the only in chain. sensor East investments resiliency. sensing based image quarter improve step and external milestone both significant image Fishkill has the internal of the automotive-grade to supplier our our XXX-millimeter to sampling Customers Another onsemi and fab made every the sources out

automotive and need. are remain consumer vehicle With and compressed. forefront getting and evolving ahead of must and design continue the shorter behavior, we trends at cycles requirements our to of the get latest Therefore, customers' regulations,

recognized innovating with for world in and We value are the best being provide. we the the

Volkswagen for focus integrated on intelligent silicon intelligent carbide portfolio vertically broad our with power, recently, received a Most electric with technologies, along capabilities. Award establishing production our we vehicles Innovation Group our of prestigious future for on partnership strategic sensing

We solving strategic are trust innovation manufacturing well onsemi's to customers partners packaging as rapidly and problem like grateful the as in for evolving scalable joint market. deliver capabilities approach VW, automotive our expertise, other who

continued application, In year-over-year sequentially, nearly as infrastructure, energy well in QX. Industrial, our in XX% medical and year-over-year as which revenue with strength XX% grew X% increased

Our growth like growth inverters, adoption EV infrastructure of inverters solar energy driven applications accelerated high and in the Industrial by segment fast storage energy is the chargers.

optimized customers. full position has the to capacity carbide coal to number packaging Solar share silicon is surpass installed forecasted market onsemi deliver one gas by the a technologies and system efficient of solutions silicon, suite XXXX. And most highly and to with and in

manufacturers We the inverter customers are inverters, supply top eight leading in their for of These secured among support solar assurance $X.XX are suppliers. of billion now long-term agreements XX solar supply to growth. power have which global securing modules with

Highlights continuous expansion of monitors in CGMs, for reimbursement or market by medical, monitoring include glucose the driven therapies.

the we portfolio. expect And five we next one CGMs, support sensor We with this a which are continue to interface our in at CAGR number over to years. grow XX% market

In lowering Lexie who accelerated game is have cost solution, over of one improving ownership. at aids we will heart Hearing hearing intelligent in one partners the Companies innovative of and with with uses aids, customers, and changers market Time world's adoption accessibility solutions, Influential counter the as Most push sensing onsemi's in earning the XXXX. XXX's their them the of of hearing technology recognition in

thank as all strategic incredible the effort Once other sensing. focused of who our areas silicon on who as remained on employees all work power want to growth and intelligent again, those our well carbide our of around world, I

have market allowed can and drive and problems where to believe accelerate mature tackle size We generated our The by leverage a as our we our growing increased investments support unique the businesses. capital infrastructure us scale our we to the operation have a company growing needs and opportunity complex outpace output with and in customers. the company to of to our the expertise inside of areas

details to over to me Thad more you our give let turn results. on Thad? the now, And call

Thad Trent

for pleased Hassane. report Thanks, another onsemi. to stellar We're quarter

QX results navigating the our Our while the execution, clearly industry consistent demonstrate QX macro environment. soft outpacing and our outlook

Automotive of by powered drivers positioned growing business growth as end-markets and fastest our been We in are Industrial. uniquely multiple the secular has

revenue All gross our XX% basis the per in $X.XX, We midpoint by which margin quarter-over-quarter QX share a range. X% earnings our expanded delivered metrics guidance financial guidance. to to sequentially, points of XX our increase exceeded exceeded XX.X%, and grew

business teams have performance the growth global transformed to above margins. attractive deliver sustainable at with predictable Our industry and

in end $X.XX quarter and over of the increase Industrial increased without Revenue revenue growth renewable and markets, sequentially. compared second the X% was was XXXX second impressive electrification carbide, Automotive Even at silicon by quarter the increased for flat our for accelerating roughly pace billion, and an demand with driven QX. to sequential energy. The

of LTSAs and with mentioned Hassane carbide. silicon customers. automotive increasing and to Turning execution infrastructure our energy number continued

support to demand production the internal of and plans. remained increasing carbide our silicon our ramping are We ahead

industry Over contributing and leveraging expertise. manufacturing made These much our the past to brownfield investments two to are leading footprint financial faster expand now investments ramp capacity our results. we ROIC existing production have strategic by and years,

margin which our fully to sequentially. the In loaded quarter, proud commitment nearly on take onsemi and their opportunity quarter, operating to And thank XX,XXX delivering the across business report start-up high-teen the gross cost. quarter-after-quarter. silicon globe to I'd basis, delivering achieved profitable like a business to first outstanding second includes success results for this employees its our all carbide I'm margins silicon doubled carbide

to Turning end-markets.

now and Industrial Our the sequentially, our with Automotive accelerating adoption driven of hit In X% record of well over and year-over-year, year-over-year sensing X% overall continued in for revenue applications, vehicles. growing in and a revenue. QX, of as medical quarter-over-quarter XX% need billion $X part infrastructure, in is QX, grew energy continued the EV as XX% electrification meaningful a by new strength increased and XX% revenue which year-over-year nearly charging,

We start bringing million more volatile included $XXX transformation. since non-core continue the revenue, and which revenue exited businesses, our another million in million nearly of $XX our total $XXX to year-to-date of exit than to QX

million are continue expect million non-core to to to $XXX engagements with markets, customers. strategic exit XXXX. will are margins $XXX We our and favorable be where opportunistic in We in now

continued and auto the an with increase million, was in PSG X% a more Group driven to split the or shift infrastructure. operating or Advanced non-core nearly Automotive $XXX our Revenue sensors Solutions Group Intelligent in million, for by XX% and X% in increase higher sensors. year-over-year billion, eight offset or Sensing primarily markets, the was $XXX at in Power for XX% strength decline due year-over-year, 'XX, QX by $X.XX Revenue portfolio, for exits was the energy of softness between year-over-year over year-over-year, Looking Solutions than units, image megapixel revenue X% Group and the such value a in increase deliberate increase Industrial. Automotive to ASG ISG as

gross silicon from of quarter. despite last carbide Our significant basis by XX disclosed margin non-GAAP quarter-over-quarter XX.X% headwinds we the GAAP and improved driven points EFK and

XXX in of driving gross several We structure as our as expect gross cost continue network. We our of we maintaining committed points margins well the Fab for we manufacturing basis but to Right dilutive the to next external remain quarters. to execute to and long-term our efficiencies EFK internal, consolidation trajectory strategy our fab, margin the as approximately further be by improve

year XX.X%. non-GAAP $XXX.X million was Non-GAAP XX in Now, give the to and GAAP quarter quarter margin expenses quarter in GAAP operating for some quarter-over-quarter. $XXX.X was ago. compared compared basis of your operating for second you numbers were as points to the operating let the XXXX. quarter million XX.X% were $XXX.X additional the operating expenses million models. as Non-GAAP second operating million me increased margin for a $XXX.X margin

XX.X% rate rate tax GAAP our was and tax XX.X%. Our was non-GAAP

year GAAP our end earnings $X.XX, was ago. per a first diluted above share quarter of quarter was as the per in compared year-over-year the Non-GAAP and to $X.XX flat share guidance. earnings for high $X.XX the

to of diluted diluted per was our share average million $XX.XX shares QX, was non-GAAP XXX.X And shares. million an our long-term repurchased free and XXX.X price shares, strategy we flow GAAP million shareholders. Our share $XX In remained share. cash count count our committed we returning of of of XX% to at

needs equivalents the cash downsized on we to and $XXX the proactively In our $X.X align million million flow and extended strategic $X.X sheet. balance revolver. and by at $X.X revolver to Turning operations to $XXX.X undrawn investments long-term negative billion inventory cash capital had was to to XXXX in our from projected was billion quarter. billion growth Cash $XX.X million second flow. in to and timing and QX, the we maturity cash Cash our in and due of free was expenditures

We for the to to return remainder positive the expect flow free cash of year.

QX $XXX.X expenditures to were intensity Capital which during of a million, equates XX.X%. capital

we indicated are range carbide our millimeter our percentage and in quarters. be of XXX As our capital to capabilities significant intensity teen directing for silicon EFK to high at previously, next the a and the expenditures we portion several enabling towards capital expect mid

the $XX.X $XXX.X with first and of days and days to silicon by ramp. transition DSO increased includes Accounts inventory XX increased approximately consistent sequentially million, million XXX This Inventory inventory days and receivable XX $XXX.X of days, by to bridged by the four days. fab quarter. support was increased of million, carbide

builds, these base Excluding strategic inventory quarter-over-quarter. seven days declined our

We of seven inventory Total QX in X.X $X.X weeks to debt at million flat in proactively net weeks and Distribution sequentially is at distribution inventory remained QX. leverage manage inventory. billion increased with continue X.XX. $XX versus weeks

provide non-GAAP non-GAAP table quarter. detailing third release results. elements our the our of guidance to second the Let me related quarter for A our now and guidance in GAAP provided is press you key

our of the to to XX LTSAs orders. next revenue non-returnable and to our business expect in billion months with $X.X Our addition over visibility, approximately from continues non-cancelable and committed strengthen improved we recognize

of Given macro anticipate $X.XXX in We billion cautious stance a the $X.XXX we billion. revenue will soft environment, range to taking in are our guidance. QX the be

our and Automotive plan mid as with expect in quarter-over-quarter digits, non-core further to Industrial exits high-single markets. We to we other increase markets down

of lower due carbide, includes headwinds also of which gross be to $X.X XX% share-based compensation between expect dilutive margin plan. utilization, to factory remains We the non-GAAP XX% EFK and and ahead silicon of impact million. This

gross As will our a be expect we we have margin stated, manage previously trajectory headwinds. temporary and for these our maintain we XXXX year as transition to

We be We expenses million. $XXX the compensation of of including $XX expect $XXX anticipate to share-based will non-GAAP for million, operating quarter. non-GAAP negligible our million OIE

diluted We to XXX million results of quarter be share range rate expect be be range earnings for to to the third in our our non-GAAP to count expected non-GAAP tax is of in XX.X% This the in and share to the approximately $X.XX. XX.X% non-GAAP per shares. $X.XX

in We expect capital expenditures carbide of $XXX million to $XXX million, primarily and in silicon Brownfield investments EFK.

we've of been the up, us better enabled the wrap changes have soft start market business and our transformation To environment. to structural of implementing since our the improved the navigate resiliency

long-term execution with reliable We expectations, above to have results another model. is quarter path our that delivered consistent, achieving our reinforcing forward

our to market a financials have quarter our We continue in volatility navigating the and short-term to reduced while at our plan time. to one shareholders and deliver held commitments we for dynamics

questions. over to call the turn to Liz like back to I'd that, With open for

Operator

with Our Christian, now comes line open. from is question Danley line [Operator of the Chris Citi. Instructions] first

Unidentified Participant

Chris Hey. Danley. for [indiscernible] here

semi dark guys. and cycle point? taking little little you second. is how My Sorry, went Any the would three visibility ago. at now silicon last a pure comments semis you Hey, out, the you a it's just question first overall on cycle, versus on just carbide for versus overall just worse? months a quarter better, this compare Would say gotten Hassan, now

Hassane El-Khoury

position trends and I'll with a Even way both mean of that take energy of the those that silicon these underlying are infrastructure. it I the up. industrial is businesses remains that's Yeah. in and really business the lot mega EV tell carbide, And -- healthy. you out if auto you we

general would So carbide, you without of both our, what growth that's those also the silicon in supporting put for business. when I call silicon

in sustained. So is these strength markets

Unidentified Participant

how about industrial? non-auto And

Hassane El-Khoury

the flat Auto a slightly and to more And we our lot that industrial, and are we'll same see down, businesses see are peers it thing. seeing slightly that's exposed those down. of

Thad Trent

slightly, Hassane non-auto our we mid to high-single expect it [indiscernible] for digits up QX. And industrial in but to down Yeah. was be and said, as

Unidentified Participant

and Yeah. Has specific stayed lead months same up, down, any follow-up, quarter-over-quarter? -- in gone ago? three shortages stayed Great. up the changes the down, times times And your for lead same, shortages on -- my gone versus

Thad Trent

Yeah.

if a times, quarter-on-quarter. very There’s have pockets been consistent average where they’ve lead pockets times time, you at the it’s average, quarter-on-quarter. few where lead On look our on But flat lead decreased relatively increased. they’re

Unidentified Participant

Great. Thanks, guys.

Thad Trent

Thanks.

Operator

Our with next line the question America. of comes from Arya of Vivek Bank

Blake Friedman

Arya. question. Blake for is Thanks on Friedman Vivek my from This taking

with start that signed want just a to I number has first, off of onsemi carbide silicon So LTSAs.

was which versus you is is above carbide aren't? you're mix And know further provide can you silicon growth year-on-year, peers non-autos? maybe XX%. then market, to I hoping the industrial the certainly But other versus hoping I up was your into So And contributor. of well XX% autos down what looking could describe a is peers partial I seeing X% what

Hassane El-Khoury

couple Yeah. A things. of

On same we The the for market. about silicon in still XX% carbide, mix, is about it's we've $X.XX XX% talked about that the about auto, billion, whole talked is are Industrial LTSA the the industrial. that's before within

carbide includes silicon $X.XX. modules, the IGBT that's we provide silicon that or So we're because talked able driving and about to hybrid that

scenarios. the under about that's the includes in really -- underlying mega the focus own on within over that We going business, and remarks, medical extremely fact to focused to industrial. from I my growth charging is its industrial we the markets which reimbursement our part On counter transformation apart those breaks of energy specifically, CGM on about the aid And of driven also seen, hearing all prepared the talked the side talked trends the which side, being industrial. renewable that, infrastructure, and us the of are what are that industrial is includes is

very strategy perspective, our specific put investments we but these growth have a specifically. been where coming to have are chosen of from our the they're driving to is that's where All underlying growth, company and

exactly to the versus So that's can the general is pinpoint peers. onsemi reason I specific what

Blake Friedman

brownfield Got to the own down industry you then be fully just progress on it. to substrates strategy consider can of line the Would the demand facility has in-sourced. been I And time for and road? silicon expected but investments, trail carbide ever understand building as foreseeable supply its in-sourcing the focusing future. greenfield was hoping a And silicon provide carbide an follow-up, management update with I your on

Hassane El-Khoury

both of So answer the I'll separately. -- these

So I this going fact majority year internally. exiting the the be progress reiterated with still coming that is we're to track. on

So business actually performing we're -- still that than on track. actually operation expected. That is we is better

in with high So made our six commitment going ago, this months we've about year majority we're to to confidence so internal. that months nine exit

As Brownfield, with of have a we far Greenfield, runway as lot Brownfield. the

a exposure. see We time And that going it. fab have we're to the go utilize great needing is, back and to greenfield end doing we're at don't to We any future. in what

on and are Analyst Right that going fab dependent we those support economic we embark our to on be Day sense. that right those LTSAs are that's with described disclosed, Brownfield, wins Thad that's our Of with all as disclosed. specifically that course, have strategy in business we now, all to the the able we've supporting

it. the Greenfield, better But highlights talking good look, even a is good ROIC really we about able to really for is to go Brownfield to today, that do than And and we're to and are we’ve to business now, been it. path then able reason that’s support And deliver. the have if we that's what

Blake Friedman

you. Thank

Operator

of Kumar the Harsh with Sandler. from comes Piper line question next Our

Harsh Kumar

guys. you Hey, hear Can me, okay?

Hassane El-Khoury

Yeah.

Harsh Kumar

guys. Hey, Okay.

I'm quarter get questions, business change deals. business. a First seeing bit I seeing of from we're This I multibillion-dollar customers, a congratulations. carbide, so another little really in customers, guys, you’ll of congratulations. guide yet fantastic you And you used but silicon Hassane. really sort transactional had get all, two your is to orders, get you in now orders, large large see -- multiyear, and

are if happening why because orders? there And taking because this comfortable of know never orders? more want more orders involved so, a as kind environment just this then then the these sell strictly portion that all of taking you these comfortable a happening got chips you follow-up. competitive much you're are or want XXX% I but to or Is And on of are on these to wafers And recently is well? is you've clarify, I've said wafers, I you

Hassane El-Khoury

Yeah.

the still the call let interested not not business So that's because substrate. We're in of we part answer me latter substrates what selling straightforward. we're in

for demand changed. has on not consumption, the about that we've all been focus manufacturing is internal And utilizes substrate our of Our the talking operations. that look, substrate

just ahead ramp tandem performing in of revenue and capacity ahead customers. plan. operation that unchanged And that our our from increasing remains remains the or we're That focus. is our of So the

what So with I'm very, satisfied the team very done has there.

talked is it's the confidently only we have if and it's As been as that not have customer, a very our very not far scaled at the changing willing our on. about -- What landscape, about silicon willingness ramping. to We've is, that's only take we one the the -- and scale. think what supplier we strategic is you been with engagements business our carbide are always capabilities and we've quickly

want, And ramp, their with to to very, Tier whether they our customers no expansion. what no OEM that scale deliver had in that all an who very on is have X a exactly and hiccups us technology, no and our in to hiccups the really it's gotten commitments ability hiccups now and customers LTSAs or customers, clear in

those coming to want winning they're back and expanding future. more they of because business our secure and with So more products they're agreements their

to really it's how be. it So it's win-win, a you want and

Harsh Kumar

for follow-up, want next thing. and on Fantastic. investors my kind know to always look deliver you forward And I of the

the silicon or than those you're previous carbide the then at XX% vast you a update on majority. you your cost might plans the I And bring then at the investors lot could your in end internal and year know that, clarification disruption at point about by also Maybe So on hear on wafers. wafer. X-inch Hassane, with bring it. while Curious, time, for have a question you this X-inch that for costs. Are shooting customers all I this more of the us We question. up supposedly if had you lower for from

Hassane El-Khoury

expecting the Okay. what The The year, we'll XX% latter reach in one, of but is and the we above goal are that goal by end is. the over XXXX. not that that's

to we're on keep of where XXXX So and we're and you year update going see going market we XX% exit going depending and the the into that kind dynamic this to we'll above on there.

part first question... the The of

Harsh Kumar

X-inch.

Hassane El-Khoury

So described we’ve -- we're track what past. still with I've on consistent in the and

are running We X-inch currently.

yield, are for -- that. running it We all baseline, baseline the we call baseline what building I of what

-- out to we we're So have kind manufacturing. been producing of X-inch order wafers in the of flush all

go ramp, we are So we when and successfully done able fast as as to X-inch. we have as to in ramp

So delivering our to our competitive, when need capacity able there delivering to on for able be they cost and to ask customers What the ramp. customers X-inch deliver We're don't moving all ramp structure X-inch to be both today of to these commitments, is be forward. for care and the that. in on

with, somebody that They are comfortable we and look, have capabilities able got a and to manufacturing looked as when it. as feel our our business confidence site. on see customers in And deliver. in X-inch it's and signs it the they that's we're Our that you audited LTSA, XX-year

Harsh Kumar

Congrats Thank again, you. guys.

Hassane El-Khoury

Thank you.

Operator

Mobley question line the of Our Fargo. with Wells from comes Gary next

Gary Mobley

Hey, hear you me? guys. Can

Hassane El-Khoury

Yeah.

Gary Mobley

to to supply We're side? preliminary primarily a five-fold fiscal you're It apologize. fact of like the the sounds the 'XX demand constrained, year. the can this introduction, speak silicon considering not I going for cutting constraints. carbide probably supply view revenue out end Then here you're year maybe if for on your that at focusing maybe but appreciate you increase I

Hassane El-Khoury

you We're forward. projecting going to into Yeah. exit higher. not healthy going not substantially is it the and can be XXXX, get guide take be XXXX, rate, for we're project when basically, to can but then to will QX, we But which you

Gary Mobley

as maybe specific us I then if opportunity understand on think the update side And funding, sort Maybe Okay. where if an that. carbide, of for can the you an subsidies, CHIPs the give to update on elsewhere, well, (ph) so can I chipset of equivalents, you an carbide, Act business. a stands? had silicon any can weren't government give on that you silicon comment us but support to really And

Hassane El-Khoury

just of in in CHIPs own engaged or have Act. in Korea, operation parties, of and in not the but Europe all we're their which we U.S., Look, course, Yeah. a variant the has big

the So we're site. billion in investment to substrates three. end-to-end world really an way all wafers engaged be in which announced only for all silicon will same the the on We've manufacturing, $X from the a carbide one

And considering government it's going one discussions all we're part specifically of brownfield these talked where purely the on the is question. to economic three way three related We We're a main carbide it big end of on year of decision in because now be. between these, regions silicon the all is Therefore, of comment financial. the the but these role the one to and all of is the funding swinging for capabilities or and we made have decision regions. in from of about and a that another depending plays process And which of to decision your site. in the well,

we're but As sense makes what the it priority we comments create where it to progress. year decision-making Act, get it to going our that's value. to goes. the have shareholder top decision how we that for them they and of ROIC made the make to our that's now and That where between carbide, and the remains and of that's best of far in really investments, CHIPS silicon going on with specifically part as up We're our do to general, go in

Gary Mobley

Hassane. Thanks,

Operator

comes question Christopher Susquehanna. from the of next line Rolland Our with

Christopher Rolland

for great guys. and Hey, Thanks quarter. question the

did are for Vitesco So they $X smaller or finance wafers take this? customers new it the is of they to amount billion your in really from know I amounts. well capacity? my question But are through How they about is dedicated looking overall as your about wondering around here investing almost just the financing on thinking want haircut Magna Are here. Are your capacity? strategy out strategy, you well you’re this? and of And thinking to in getting SEC, getting you around for help co-investment some What a these commitments. are you this? with competitors like I'm on

Hassane El-Khoury

what operations. at own Look, can afford flow Yeah. very from cash One, will high start our a the I because we of investments level. differentiate onsemi,

we're funding So and as us to business help us at looking build not grow a help way capacity. the

look balance the CapEx you at and to cash our of look at our supported operations our cash able all investments, at look them by position our and be You you from operations. are sheet,

very to capacity it posture expansion. different a So when comes

There a and us. than an strategically that customer is opportunity the it's where multiple depending commitment. co-investments or is with for. it problem what the co-invest one from higher on Where look they really, win-win. And LTSA It's what the comes a on it, have customer no customer scenarios commitment with

So change haircut. of the ownership or doesn't our cost that It book offset on of depreciation, investment. It's provide. apply just a whether It on it's not structure based that depreciation we it's the for it's offsets equipment our the an how and we value their depreciation. basically, book

But we work to ramp to again, we solve all those what And must of money those we for to is strategic for in nature, that investments. with This are us get specific is everyone ramp. not and strategic it which these is are that constructively able a specific -- is and customer customers. are means -- to trying a

we're field very it's a different So in. playing

Christopher Rolland

Great.

Hassane El-Khoury

see XX% to better about And talked Brownfield Brownfield, for Thad Analyst which you delta Greenfield. versus at back the Day investing in than the reason CapEx that Greenfield. a a We're dollars goes in (ph) again, is,

lower that quickly delta we're able why in output So cost. of ramp higher much to kind the so you for much gives

Christopher Rolland

LTSAs expecting a gross definitely there. the just industrial solar, you just And now talking I We talk wanted to Yeah. is, I to about wasn't expecting Are part of as I in faster? follow-on $X for which SiC solar. industrial. there, ramp believe, also understand from margins SiC overall. billion then efficiencies about

they in You said doubled would industrial these this Thank as Is is you well? quarter. first percentage progression? about than of all as a And expect? moving part SiC faster of profitable because this you. talk it

Hassane El-Khoury

Yeah.

put we have. industrial, Simon the module, a revenue on infrastructure, customers. silicon Remember those where module value provide the best single about unique able and silicon billion ramp being required both Day, Analyst serviced by energy carbide. So $X.XX on to we're talked into the proposition technology the market to hybrid in a very the specifically that is for is the

both power So is and on silicon IGBT that carbide. technologies, or X.XX silicon

years. number, a ramping But tandem both business to they'll automotive, as far the talked about we'll going year, growth just in they're a TAM the be how two look, that ramp, automotive the ramps you ramp we up the recall, But to XX% given last And if percent as for ramp, As ramp. in as last far together. number. be higher

from the and years healthy healthy pretty to of execute it's healthy purely course, very both TAM we're will as both CAGR dollar, the because that a it's the five of trail automotive But remain next going we growth, of are growth. So market LTSAs. But those addressing. over the

Thad Trent

on percentage upon. first And of financial on line It's has ahead basis And to Yeah. ahead of the quarter-over-quarter. the performance proud in sight well. you gross there, extremely have all of would the the metrics, a performance high-teen silicon on ramping loaded plan. profitable again, the of tell very impressive we're margins we're team there. Achieving that. quarter, business, schedule the of because what What the for is, -- are we performance carbide fully I we is look, margins operating accomplished doubling And

profitability, original we was what of So we’ve although, than plan. our we it sight to achieved in quicker have line

line. as I contribute as bottom to go to revenue continue the So expansion. think forward, will we’ll continue see that grows, we that And to

Christopher Rolland

Congrats again, Thanks, Thad. guys.

Thad Trent

you. Thank

Operator

line comes of Cowen. question the next Joshua from TD with Our Buchalter

Joshua Buchalter

Thanks I my on follow to one. the taking results. last up on guys. Hey, congrats did and for the questions want

silicon levels substrates internal you So the substrates it Thank would mentioned we should remarks, think to internal expect, way over be the continue disaggregate versus margin you. external headwind a Any to in as ramp high-teens Because carbide. and the for coming be I you quarters, operating it should I -- that higher? it's to could least initially, imagine, at margins. would move prepared

Hassane El-Khoury

is. it Yeah. as not Look, we're what up breaking

as an it what And aggregate going costs look, in of absorbs business. that adjusted take start-up going to costs number is totally because the start-up there's up, it's can that is. mix You as course, still business the keep

operating is gross be continuously that we the margin. margin business, absorption that how be So improve consequently improving more scale start-up will will will which as and we the trajectory, costs

milestone financial the we that that is So just achieved a not have destination. milestone. It's

and like improvement we changes. line or mix earlier on the, slope that to of said, had as here ramp improve it, it of but we scales continue always it, financial metrics Thad that that the achieved from have than the sight as expected, We to call continue just will and all business we'll

Joshua Buchalter

in we row I'm try color. it. part what's sort higher anticipated. just in involves XX% now. going to Is through time to headwinds ask there? East in question should of us for your Thanks of a come for the walk expect it Can that of to for the frame? quarters two the a Thank beginning Got higher are have than you XXXX? right on the going Fishkill other longer and that business they trough you. Why

Thad Trent

Yeah.

We've exactly it's cost announced got understanding in if it cost we how benchmarked, you what we footprint, to there. in last know getting really structure disclosed line. go that arms we we've to months run structure know consistent, six think efficiently, back to what very a and need We and fabs I been quarter, we’ve get we need the our surprise now we what large spending what a got around back do. to manufacturing we right? Look,

to a cost structure running like As take capacity. the but do out, fab hard cost locking to of full to tackling takes at this what I when take out It’s say, need time. is it and you we

So several from be quarters. the than expected. will time horizon next the is bit we little longer It

we the a as maybe year we’ve you to continue has and probably But about – for exit by take parity been at we fab time headwind think than the XX slightly we this year think out. efficiently. cost running expect of a us I that more got

Hassane El-Khoury

I if at the reflected delivered expected. operational highlight the the the to are it also absorb the we've yes, this some, and in your next headwinds is, other then metrics and higher the use than But beat guide able quarter that thing would and for rates quarter. we're look you all one words, we given to But reported gross margin

know how to this just for fix two years. the we last been we're thing point, on. fixing That's stuff. to another Thad's work it to going We've back So

to We our time. take have business line underutilization in course, do. of rest including of sight But is just the that of the operating stellar going to we've to had

And So from structurally comfortable, be. our happy very different say, what and used I’m about. is it very, very can that I confident margin to

Joshua Buchalter

color. the Appreciate Thank you. Understood.

Operator

of from line with Our Needham. Bolton the Quinn comes next question

Quinn Bolton

congratulations like Thad, nice wanted could gross are little on a to just sounds guess color Thad, you higher. results. I on Hi, Hassane trending more margins and SiC the the I up, give us if see Revenues moving bit margin.

the decline I'm wondering, basis there headwinds gross margin the point for XX third particular midpoint? the in at just So any are quarter in

Thad Trent

We so a Look, EFK. Yeah. got we've of talked about just number things, right?

that's So clearly, headwind. a

You've from in got utilization. to Utilization dropped XX%. slightly QX down XX%

As we look think kind about that of we in category. down to utilization forward, flat being

headwind So we silicon carbide. just may stepping that. that slightly ramp down margin to of have the a little key the on more But contributor is

dilutive margins to have the though still doubled, it's average. the even So corporate

have more of So a on as revenue you QX. dilutive impact increases,

of then charge the think would little and impact of silicon underutilization delta is a So quarter-over-quarter, bit carbide. ramp the I this really more

Quinn Bolton

Do SiC they're understanding a you still just quick And Great. below improve average? expect to quarter-to-quarter the margins follow-up. corporate

Thad Trent

Yeah, absolutely.

Quinn Bolton

Perfect.

Okay. Thank you.

Operator

comes the Our from Arcuri of Timothy UBS. line with question next

Timothy Arcuri

you to about could of help kind and anything be think year Hi. to into and to 'XX? any the have $X.X what billion Thanks. update XXXX Do XXXX silicon next LTSA carbide from us

Thad Trent

giving we're No, not an update. Yeah.

is right are. as fourth given we get the where this an for Our we'll on outlook now and year, we given quarter, be reporting focus of run rate XXXX obviously, the

number higher course, guiding LTSAs it Of and the is term. where XXXX, yet. for the the But short right the in not on we're It have talking in ramp. now, in it. substantially but the we're than not LTSAs, it we focusing We're given about will execution be

Timothy Arcuri

Great. And making say captive how where than this how about sort push year. of going did you're you you upper of the external range some do you given you some versus investments take the of XX% China. term, that sort then, out XX% balancing to that Is to do about you you to weigh where longer when more that? this particularly longer do that But an or Hassane, number lay want there want like think You to think of mix? term, be are in Thanks. others how

Hassane El-Khoury

are there how factors of Yeah. multiple we Look, balanced it.

be too. supply our support to able be the have want to to at internal. the that and Our we I've have we we to said in XXX% We're be going focus and be is When resilience we look not assurance, -- customers. to LTSAs supply to past. manage don't able

on, not geopolitical You path with you give dependent assurance, you sourcing we especially, it going that's China, today XX%, as the of environment. right? assurance That to say as and be out of aspect supply think of it can't about is can or supply geopolitical course, a the take when ignore stand

play course, role. of a has that, to So

very, have factory is very it's scale at we we the performing cost And have more a that factory a have we and factory, a importantly, well.

has for also we compared supply do outside. internally. to sense able make So to us are It to what the to want to economic get from

XX%, always all as of think depending to all But the it consider we what take, that you So of mentioned. always going about be. give we scenario factors look I or that these, at these is can

Timothy Arcuri

Thank Hassane. you,

Operator

next of from the Svanberg with Our question line comes Stifel. Tore

Unidentified Participant

impact Yeah. margins, out statements? the the the you. understand for Thank financial $XXX or you in maybe are, Thank the of on potentially Can you. the the the guess This $XX wondering played help on I Tore. cash questions can million this Just to co-investment flows? couple follow-ups how us million gross be of on a is Jeremy (ph) earlier co-investments. mechanics what

Thad Trent

Yeah.

Thad. we – is this As

the that the accounted from for receive it The on amortized we agreement. of is, goes as So way the that it customers, life obviously, the sheet. gets balance cash over gets

years, LTSA actually can that about about an those products you as over to the think getting So you XX amount life if recorded maybe have is think it that through shipped, dollar are revenue. five amortized

that payments we hopefully, over intent it's a to flow cash advance before But that about frame. in, cash think bump commitment get a margin actually, we So cash the in standpoint. That's out, in as in, equipment. going make you the it's from favorable the time coming the we can make

bringing on those on And revenue. again, capacity reminder, LTSAs committed all of is a the to we're support just these as that

So can we're we on that it. capacity hope not building the fill

are mentioned hits actually these revenue But supply Hassane earlier, of the customers over us. line these situations, co-investing accounting works for time. So assurance in as that with the

Unidentified Participant

the to And and equipments Great. use to on it's maybe It's revenue you. any that Is Thank specific like for customers? is there are it's the of a the any -- other kind not follow-up that. prepayment. ownership limitation a equipment, any quick just if on so of this not limitations

Thad Trent

prepayment What as things. or customers much different. on there is just it, situation these we do a We Every have deposit. lower Yeah. flexibility little where customer you our is consign equipment situation. about little Obviously, sits described their I will situation just selling a of a to we situation is that books. depending think depreciation and a bit It's But bit customer if as that bit rate, and situations different. books as the a little we every want on can is product a off develop have different, us

to for and the of any locations. ability our of the on any the one lines customer try on production have to move tie not we So capacity up

have So it's flexibility us. for ultimate designed to the

Unidentified Participant

Great. And if one question, last I could.

count the the Are our world? been and slightly Is that's in the quarter high-teens intensity at that you fab this capacity? maybe the [indiscernible] of that is to achieve we're other seeing around Is with targets seems you With costs to terms of guys ramp problem in also the ramp-ups in the head like Analyst something to this seeing seems It Thank targets? with of some this different to free your Day. change the in and need the that XXXX there this be any to the that you. point? term outlined cash ability very you higher consistent, on anything results flow capital and at long the terms

Thad Trent

we're part of don't No, investments we're count. have where right? leveraging our mean outside Yeah. And footprint think I is don't brownfield and think shortage, a norm, labor we I seeing this I -- brownfield the head

the no change a intensity, of short-term. the more capital to terms of long-term In plan. This is

of remainder cash As the positive will flow free year. go back I said, this for to the

but So our equipment longer-term, of targets timing it's previously. our in future, fab the well capital in and transitions the to But silicon to foreseeable strategic the mid We time, we’ve all that support as intensity our remain we’ll really down inventory think over then high-teens as stepping the ramp. ramping of same. be outlined getting the carbide just as our for

Unidentified Participant

Great. very much. Thank you

Operator

Securities. Truist the comes from question William with line next Our Stein of

William Stein

Hi. you Thank great Hassane, Great. for your my taking Congrats Analyst discussed question. emerging results on control. at Day, the products the you outlook. in and digital power

focused that that I to can us remind related understanding likely on servers think maybe that are confirm AI, is of that? targets and you traction also your and towards

Hassane El-Khoury

Yeah.

which markets, there. to is play the driver silicon content. definitely flywheel or most that's it, So have we have what with call auto server effect switch, switch or track we that primary to increase opportunity talked every silicon the the towards that is also infrastructure, With or We're of industrial. about on it the carbide there. obviously, and Sudhir that we our AI, the and on controllers But call targeted focus cloud part the of applies

us a -- That's we're that. we're have winning to next It's silicon we what the to also. we this From delivering like new to And run, doubling in saw going in do going be early carbide. starting some down, sampling performance. to the on come we're and internal, formula We're very for of for already start technology perspective, business going decided, products be I progress. we year, will making so guess, you progress fast

more tuned QX or we get into QX stay as So of updates for 'XX.

William Stein

I Great. And if then a can. follow-up,

margin any many do of yet, neutral possible update? that could and backing better goal? be the not sure the there's in carbide around year, think, reiterated the you but ramp the level. goals the will talk that ready said of it off heard Is at -- the silicon exiting You've enterprise than about or one reason an you're I today, you. past, for I you've I'm Thank that's that you it Is to the

Thad Trent

expectation the remains our Thad. this Will, is No, same.

As the below because of as We corporate we’ve margins of we’ll at the is and carbide impact being I by just earlier, highest QX time previously. those exit average. the have ramp corporate saying believe average, silicon again, we year, dilution stated the the the margins was the

William Stein

Thank you.

Thad Trent

Thank you.

Operator

like concludes call closing turn question-and-answer the for to I'd That back today's session. to Hassane El-Khoury remarks.

Hassane El-Khoury

long-term operational execution soft use we joining value all, our for Thank to shareholders for again and times call. X to the good by environment. we excellence navigate as We continue outlook Through you it through market to plan put with the our committed you. XXXX. outgrowing delivering winning in our semiconductor our continue to and Thank formula confident of to market deliberate remain

Operator

conference call. for Thank participating. concludes you This today's

You may now disconnect.

ON Semiconductor (ON) 31 Jul 232023 Q2 Earnings call transcript